If anybody is qualified to judge the success of combining investment and commercial banks in the same institution, it is John Reed. As chief executive of Citicorp in the 1980s and 1990s, he evangelised the attempt to create a “one-stop shop” selling many different products and took the bank into its merger with Travelers Group to form Citigroup in 1998.
That deal redefined banking in the US and triggered a repeal of the old Glass-Steagall split between investment and commercial banking in the US, which some critics blame for being the root cause of the 2008 financial crisis. Now politicians in the US are attempting to reintroduce the split, saying that Glass-Steagall’s repeal contributed to the financial disaster. Citigroup needed several injections of capital from the US government in the fraught months after the Lehman bankruptcy.
Now retired, Mr Reed believes the business logic behind the transaction was flawed, and that the old Glass-Steagall division should be reinstated. Mr Reed first expressed this view soon after the crisis erupted. Last year Sandy Weill, the other main architect of the Citicorp-Travelers deal, changed his position to support breaking up the banks.